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Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17. Which is worth more, a U.S. dollar
Suppose the spot exchange rate for the Canadian dollar is Can$1.12 and the six-month forward rate is Can$1.17.
- Which is worth more, a U.S. dollar or a Canadian dollar?
- Assuming absolute PPP holds, what is the cost in the United States of an Elkhead beer if the price in Canada is Can$2.49? Why might the beer actually sell at a different price in the United States?
- Is the U.S. dollar selling at a premium or a discount relative to the Canadian dollar?
- Which currency is expected to appreciate in value?
- Which country do you think has higher interest ratesthe United States or Canada? Explain.
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